US citizens who own property in other countries must comply with the tax obligations that apply to their worldwide assets. This includes reporting property held in Australia.
Whether it’s a rental property, a vacation home, or property that generates income in any form, US citizens are generally required to report such assets to the IRS.
Understanding these reporting requirements is crucial to avoid penalties and remain in good standing with US tax authorities. So, are US citizens required to report Australian property to the IRS?
In this article, we will clarify whether US citizens need to report their Australian property to the IRS, the forms involved, and the consequences of non-compliance.
We will also discuss how tax treaties, foreign tax credits, and other factors impact these reporting obligations.
Are US Citizens Required to Report Australian Property to the IRS?
US citizens are required to report their worldwide income and assets, which includes foreign property. This rule applies regardless of where the property is located or how much time the owner spends abroad.
The IRS’s goal is to track and tax US citizens on all their financial activities, ensuring that they are fully reporting any income generated from foreign assets.
In terms of foreign property, there are two main forms that US citizens need to be aware of: Form 8938 (Statement of Specified Foreign Financial Assets) and FinCEN Form 114 (FBAR).
Form 8938 is used to report specified foreign financial assets, including real estate, bank accounts, and investments outside the United States. The form is required to be filed by US citizens who meet specific thresholds based on the value of the property they own.
On the other hand, FinCEN Form 114 is used to report foreign bank accounts that exceed certain thresholds. These two forms, while related, serve different purposes and need to be understood clearly to ensure compliance.
Pro Tip: Form 8938 and FBAR are separate filings. Form 8938 is for reporting the value of foreign financial assets, while FBAR specifically covers foreign bank accounts.
Reporting Australian Real Estate to the IRS
US citizens who own property in Australia are required to report it to the IRS under specific conditions. Whether it’s a house, apartment, or piece of land, if the value of the property exceeds certain limits, reporting becomes mandatory.
The key factor in determining whether a US citizen must report Australian property is the total value of the property and whether it generates income.
When US citizens are required to report their foreign property, they need to disclose the value of the property, any income generated by it (such as rental income), and details about any associated accounts (like bank accounts used to collect rental income). The IRS requires a full disclosure of all relevant financial details.

If the US citizen sells the property, they must report the capital gains made from the sale on their tax return. Similarly, if the property is rented out, the rental income must be reported and taxed accordingly.
It’s important to note that the US taxes worldwide income, which means income from Australian properties is subject to US tax rules.
Pro Tip: Even if the property itself is not generating income, it may still need to be reported if the value exceeds reporting thresholds. Always disclose the property to avoid penalties.
Specific Situations Where Reporting May Be Necessary
There are several situations where US citizens with Australian property must report it to the IRS. The most common situations include owning the property as an investment, selling the property, or holding it through a foreign entity.
If the property is owned as an investment, such as rental property, the income generated needs to be reported.
The US taxes rental income, and failure to report it can lead to serious penalties. Any associated bank accounts, such as those used to collect rent or manage property expenses, must also be reported on the appropriate forms.
If the US citizen sells the property, the IRS requires them to report the sale and the capital gains, if any. The sale of foreign real estate can result in significant capital gains, and the IRS expects taxpayers to accurately report this income.
The proceeds from the sale must be converted into US dollars using the exchange rate at the time of the sale.
Another situation where reporting is necessary is when the property is owned through a foreign entity, such as a trust or corporation.
If the property is held through such entities, additional forms may be required. These can include reporting on the foreign entity itself and the income or gains derived from it.
Pro Tip: Owning property through a foreign trust or company can be more complicated. It’s essential to work with a tax professional to ensure full compliance and avoid potential issues.
Double Taxation and Tax Treaties Between the US and Australia
The issue of double taxation arises when two countries tax the same income or asset. Fortunately, the US and Australia have a tax treaty that helps prevent this issue.
Under this treaty, US citizens may be able to claim a foreign tax credit for taxes paid to the Australian government on income generated from Australian property. For example, if a US citizen pays property taxes or income tax to Australia on their property, they can generally use those payments to offset any taxes owed to the US.
This ensures that the property owner is not double-taxed on the same income or asset. However, it’s important to remember that even with the tax treaty in place, US citizens are still required to report their Australian property to the IRS.
The foreign tax credit allows US citizens to reduce their US tax liability by the amount of tax paid to the Australian government. This is particularly useful for individuals who are paying significant taxes in Australia and want to avoid being taxed twice on the same income.
Pro Tip: US citizens should keep detailed records of any taxes paid to the Australian government, as these can be used to claim a foreign tax credit on their US tax returns.
Consequences of Not Reporting Foreign Property
Failing to report foreign property, including Australian real estate, can have serious consequences. The IRS imposes penalties for non-compliance, which can range from fines to more severe legal repercussions.
The penalties for not filing Form 8938 or FBAR can be substantial, and the IRS may impose fines based on the value of the unreported property or income.

For instance, if a US citizen fails to file Form 8938 and the property is valued at over $50,000, they could face penalties of up to $10,000 for each year the property goes unreported.
If the IRS determines that the failure to report was willful, the penalties can increase dramatically. In addition to financial penalties, failing to report foreign assets can also trigger an audit, which can be a lengthy and costly process.
Pro Tip: Always file the necessary forms on time and be thorough in your reporting to avoid the severe penalties that come with non-compliance.
Steps to Ensure Proper Reporting
To ensure that all foreign property is properly reported, US citizens should take a few essential steps.
First, keep detailed records of the property’s purchase price, any improvements made, and the income generated. This information will be necessary when filing taxes and reporting to the IRS.
Second, it’s wise to consult with a tax professional who has experience with international tax issues.
Reporting foreign property can be complicated, and a tax professional can help ensure compliance with all IRS requirements, including the filing of Form 8938 and FBAR.
Finally, regularly review your tax obligations, especially if you are new to owning foreign property. Laws and reporting thresholds may change, and staying up to date on these requirements will help you avoid mistakes and potential penalties.
Pro Tip: If you own property in Australia and have not previously reported it, it’s never too late to come into compliance. The IRS offers voluntary disclosure programs to help taxpayers who have failed to report foreign property in the past.
Conclusion
US citizens who own property in Australia are required to report it to the IRS. Whether the property generates income or not, it must be disclosed if its value exceeds certain thresholds.
The IRS uses forms like Form 8938 and FinCEN Form 114 to track foreign assets, including real estate. Failure to report foreign property can result in substantial penalties and even an audit.
While the US-Australia tax treaty provides some relief from double taxation, US citizens must still report all income and assets related to their Australian property.
To avoid penalties and ensure compliance, it is crucial to maintain accurate records and work with a tax professional who can guide you through the reporting process.